Herbert Hoover, who knew a thing about monetary disorder, entered an
eloquent warning in his memoir against the pure paper dollar. Currency
convertible into gold at a fixed rate, he wrote, “is a vital protection
against economic manipulation by the government. As long as currencies
are convertible, governments cannot easily tamper with the price of
goods, and therefore the wage standards of the country. They cannot
easily confiscate the savings of the people by manipulation of inflation
and deflation. They cannot easily enter into currency expansion for
government expenditures."

“Since I was a child I remember that gold was given as a gift on
various occasions and people used to say: ‘Put it aside’,” said Ivana
Ciabatti, who represents gold– and silversmiths at employers’ lobby
Confindustria.

“We used to laugh at it, but they turned out to be right. Many families are surviving thanks to this gold.”

Monday, August 27, 2012

“The Fed is manipulating so many markets at once that it has become
tougher to identify a genuine free-market price in the financial markets
than to identify a genuine female in a Bangkok bar… I don’t want to
play in markets like this.”

So wait a minute: Israel is at war with Iran. Israel is at war with Syria. Hell, Israel is at war with everybody in the middle east. Iran supplies oil to China and Russia, who are considered allies. But now Russia is making nice with Israel. The US was at war with Iraq, and now Syria and Iran. Russia and China are at odds with the US in the battle for natural resources. Saudi Arabia and the US need each other, but at what price? And now the Saudis are at war with Iran, too. The US used to be "allies" with Egypt, but turned against their leader. The US was also at war with Libya's Gaddafi. Hell, we were also allies with Hussein of Iraq at one point--in our war against Iran, before turning against him.

I'm confused...except for one thing. The region will never get sorted out. They haven't made peace with each other for thousands of years. With billions of people starving or about to starve due to soaring food prices, they won't all of a sudden start singing Kumbaya. And if/when they go to war, oil prices will spike, making everything go from bad to worse.

This white paper appears to be authored by a "conspiracy theorist" since
it makes so much sense on the unintended consequences of printing money
out of thin air. Only problem is it was written by the Fed itself, the
Dallas branch to be specific. Paul Krugman, you have been wrong, and
you continue to be wrong. But keep kissing that Nobel prize in your
trophy case if it makes you feel any better.

The editors at the soon-to-be-defunct Smart Money magazine admit they were dumb on gold. Perhaps it's one of the reasons they are going out of business. The other probably includes the retail investors' distrust of rigged markets.

Imagine that: they thought gold would plummet when it was priced at $422/ounce back in 2004. How much gold would you buy today at $422? Answer: as much as possible.

How about at $1670? The answer a few years from now could be the same.

GATA explained it to Smart Money then and since then has been explaining
it to everyone else with eyes to see and ears to hear. But while you
can lead a financial journalist to a central bank, you can't make him
ask the right questions.

"If you’re rich you get a bailout. If you’re poor you get a handout. And if you’re middle class you get left out. " That's not a sustainable way to run the system, exclaims investment strategist Keith Fitz-Gerald.

A cancer at the core of our current economy is the magical thinking,
"no pain, all gain" philosophy, pursued by those running it. They are
doing all they can to remove the consequences of failure from the system
-- blind to failure's essential 'waste-clearing' function in a healthy
free market.

Without the discipline of Darwinism, the individual actors in the
system make all sorts of malinvestments that would never make sense in
an efficient marketplace. But since the losses from these inane pursuits
are socialized, there's no incentive to stop making them. At least, up
until the point where the class who's back is burdened with paying for
the socialized messes finally breaks.

Does the fact that Iran needs higher crude oil prices an indicator that their saber-rattling is an attempt to induce higher oil prices? In fact, all OPEC exporters may have the same vested interests. I know that's stating the obvious...

The Saudis keep insisting they don't desire higher prices due to demand destruction, but bigger profits for the lowest-cost producer must be very tempting to them.

A Canadian's perspective on moral relativism and patriotism. Which brings up an awkward point: every loss of American life in Iraq and Afghanistan is tragic and unnecessary. What about the deaths of hundreds of thousands of civilians in Iraq and Afghanistan, including many women and children? They couldn't all be terrorists, could they?

This is not an indictment on Obama's administration. Upon reflection, Bush II ordered the invasion of Iraq based on a false premise: that Iraq had weapons of mass destruction. Over a hundred thousand Iraqi's died as a result. So what did the US say? Ooops, sorry...for reconciliation, we'll help rebuild your country--the same country we destroyed. And oh, about that oil...

Yes, laundering money for Iran is the headline, but the subtext is the cozy relationship between London and Washington is about to get icy. The Olympic spirit lasted all of two weeks, as the sharks are now devouring other sharks.

The other subtext is US regulators are angry at New York regulators for doing their jobs, while the New York regulators are angry at the Fed and US Treasury for not doing theirs.

And caught in the middle is poor ol' Timmy Geithner, now US Treasury Secretary--and former New York Fed President. He's barely recovering for his non-action during the LIBOR scandal, and now he is getting heat from all sides.

This finger-pointing exercise would be comedic if it wasn't so tragic to American consumers, whose purchasing power is being robbed blindly by the incessant manipulation of markets by the central planners. My takeaway message? They're all corrupt sociopaths, and their day of reckoning is rapidly approaching. The current theater is amusing only because they are exposing each other.

I think it's a concerted effort that's been
organized at the top of the U.S. government. I think this is Washington
trying to win a commercial battle to have trading from London shifted to
New York," said John Mann, a member of parliament's finance committee who also called for a parliamentary inquiry.

Mann,
from the center-left Labor party, has become a public scourge of London
bankers' greed and immorality during the financial crisis. But he told
Reuters he saw "anti-British bias" behind "disproportionate publicity
that's given to British banking problems as opposed to American banking
problems".

A British executive at
an institution which ranks among the top 25 shareholders in Standard
Chartered saw, like Mann, a politically motivated move by U.S. officials
irked by the major role London plays in the global financial industry,
attracted big investments from major U.S. banks like JPMorgan Chase,
Goldman Sachs and Morgan Stanley."Are
we starting to see an anti-London bias in U.S. regulatory activities?"
the executive asked. "Oh yes. Is there any subtle form of banking sector
protectionism going on? Yes."

The Indian government is at it again. Worried that the flow of savings
is moving towards investment in gold, India's Finance Minister P
Chidambaram has said there is a need to spread financial literacy to
encourage people to invest in market instruments and not bullion.

In the first two months of 2012, gold purchases in India jumped 35%,
impacting investments in other instruments like the stock market, mutual
funds and property. The government has said it would prefer savings to
be invested in ``more productive assets'' that would help boost the
growth rate.

Chirag Mehta, fund manager at Quantum Gold Fund however notes, ``Given
the current economic backdrop, where governments are struggling with
problems like rising deficits and unsustainable debts, it is indeed
logical for gold prices to increase in value. With policy makers
continuously debasing currencies, gold will be viewed as a preferred
investment, lending some solace to investors.''

The Japanese example shows
that crashed modern economies with excessive debt loads can remain
stagnant for long periods of time. My view is that such nations are in a
deleveraging trap; Japan (and more recently the Western nations) hit an
excessive level of debt relative to GDP and industry at the peak of the
bubble. As debt rises, debt servicing costs rise, leaving less income
for investment, consumption, etc.

Throughout Japan’s lost decade, and indeed the years that followed,
total debt levels (measured in GDP) have remained consistently high.
Simply, the central bank did not devalue by anywhere near enough to
decrease the real debt load, but nor have they devalued too little to
result in a large-scale liquidation episode. They have just kept the
economy in stasis, with enough liquidity to keep the debt serviceable,
and not enough to really allow for severe reduction. The main change has
been a transfer of debt from the private sector, to the public sector
(a phenomenon which is also occurring in the United States and United
Kingdom).

Eventually — because the costs of the deleveraging trap makes
organically growth very difficult — the debt will either be forgiven,
inflated or defaulted away. Endless rounds of tepid QE (which is debt
additive, and so adds to the debt problem) just postpone that difficult
decision. The deleveraging trap preserves the value of past debts at the
cost of future growth.

Under the harsh discipline of a gold standard, such prevarication is
not possible. Without the ability to inflate, overleveraged banks,
individuals and governments would default on their debt. Income would
rapidly fall, and economies would likely deflate and become severely
depressed.

Yet liquidation is not all bad.Although liquidation episodes are painful, the clear benefit is
that a big crash and depression clears out old debt. Under the present
regimes, the weight of old debt remains a burden to the economy.

A year ago, the budget “deal” concocted between Mr Obama and his
Congress was ballyhooing a “plan” to cut $US 1.2 TRILLION off annual
budget deficits over a DECADE. Now, the projection for the 2012 budget
is that the US government will add that amount to the funded debt of the
US Treasury over ONE YEAR. This would be hilariously funny if
it wasn’t so tragic. What is even funnier - and more tragic - is that
the entire world is “depending” on the people who concoct this stuff.

Friday, August 3, 2012

This not news to investors who understand order flow (and invest in volatile stocks), but is an instructive read. For example, I've warned readers on the dangers of telegraphing stop losses. Yet, most brokers advise clients to do so, "in order to protect profits." Nonsense--it only encourages market makers to scalp unsuspecting long investors from their holdings.

Gee, are us conspiracy theorist gold bugs supposed to breathe easier now? The gold under the New York Fed and Ft. Knox may be there, but how times has each bar been re-hypothecated? How many ounces of paper gold have been traded against physical inventory?

And the US Treasury is performing the audit? I'm feeling warm and fuzzy already. Investigative journalism at the LA Times = massive fail.

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Some of our best ideas come to us during the most inopportune times: waking up, in the shower, driving along a country road...my blog is an attempt to capture these epiphanies, whether whimsical or serious in nature. These blogs are heavily weighted toward financial matters and/or innovation (e.g. disruptive technology)--normally boring subject matter. But when sprinkled in with meanderings about human nature, I hope to shed some light on oft-misunderstood topics--without being dogmatic. Enjoy and perhaps learn a thing or two from my moments of clarity.

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